5 factors that prove economy is on revival track

New Delhi: India’s economy grew 6.3 per cent in the three months ended September 30, rebounding from a sharp slowdown in the wake of high-profile structural economic reforms. The economy’s growth rate picked up after falling for five consecutive quarters.

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GDP growth recovered in the second fiscal quarter from a three-year low of 5.7 per cent in the preceding three-month period, while Gross Value Added (GVA) growth accelerated to 6.1 per cent from 5.6 per cent in the first quarter, according to official data released by the government on Thursday.

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“Perhaps the impact of two very significant structural reforms – demonetisation and the GST is now behind us,” Finance Minister Arun Jaitley said after the release of data. “Hopefully, in the coming quarters we can look for an upward trajectory.”

1) RBI on hold
Analysts said the Monetary Policy Committee of the Reserve Bank of India (RBI), which left the repo rate unchanged at 6 per cent last month, could hold rates when it meets for a policy review next week, according to a Reuters report.
Experts say the strong GDP numbers rule out any policy rate reduction amid an uptick in inflationary pressures.

2) Manufacturing back on track
The strong showing in the second quarter was underpinned by the 7 per cent growth in the manufacturing sector that accounts for almost 18 per cent of the economy. Manufacturing activity accelerated due to restocking of warehouses by companies after temporary disruption caused by uncertainties surrounding implementation of goods and services tax (GST).
A pick-up in manufacturing is welcome from an employment perspective, too.

3) Investment activity
Economists say investment activity also witnessed an uptick after lacklustre performance in the last two quarters.
Read: India’s Q2 GDP growth rebounds to 6.3%
According to a report in Bloomberg, Thursday’s data underlined that a nascent recovery is taking place and expectations are building that private investments will pick up next year after a landmark proposal to recapitalize struggling state-run banks. That may unclog bank credit to industry and lead to higher investment growth.

Jaitley also highlighted the uptick in gross fixed capital formation, which grew by 4.7 per cent in the second quarter compared with 1.6 per cent in the first quarter. This improvement, the finance minister said, reflected a revival in investment levels.

4) DeMo, GST impact over
Several economists believe that the latest quarter’s improvement suggest that the lingering effects of demonetisation may now be starting to wear off. The growth figures also indicate the economy has shrugged off the disruption caused by the introduction of goods and services tax (GST).

5) Boost to Modi government
At present, the turnaround came as a major relief for the Narendra Modi-led National Democratic Alliance government, which was being sharply criticised for its economic policies and comes just days before the crucial elections in Gujarat, which has a strong manufacturing and business traction.
The growth figure also gives the Modi government a chance to drum up talk about development ahead of the elections in Gujarat.

After the jump in the World Bank Ease of Doing Business rankings and rating upgrade by Moody’s, the GDP number will come as an additional boost for the economy managers.